Wall Street loves a hot trend and had essentially decided four years ago that the cloud was next. With corporations needing all of the cost savings/productivity benefits the cloud offered, the timing was perfect. Oracle (NYSE:ORCL) was one of the first blue chip enterprise companies to realize this opportunity. But recently, the database giant has come under severe criticism about the "authenticity" of its cloud services. It's being called fake.
It's difficult to be great and be loved. Sure, Larry Ellison's in-your-face style does not appeal to many people. But that's not his problem, nor is it fair to hold it against Oracle. The company is providing a service, of which there has been very few complaints -- at least not according to the rising revenues, which suggest it's stealing share from rivals such as salesforce.com. And Oracle is not the cheapest on the market, either. So, there's a reason why customers are willing to pay the premium. And it's not because these corporate CIOs are dumb.
However, David Linthicum of InfoWorld thinks they're idiots (I'm paraphrasing that a bit), which doesn't make sense. CIOs are spending billions annually with Oracle. But in Linthicum's recent article, he insists they don't know what they're buying: "Oracle is continuing its faux cloud strategy, adding to its private-cloud infrastructure offering the ability to rent for a monthly fee preconfigured application servers to be deployed in customer data centers. The available application servers -- what Oracle calls 'engineered systems'"
Linthicum clearly has an ax to grind. While he's going all-out on Oracle's product portfolio, rival companies have been working hard to duplicate Oracle's offerings. For instance, IBM (NYSE:IBM) has a rival offering called PureSystems -- launched three years after Oracle's Engineered Systems, or ES. And, after Oracle has already deployed ES to more than 1,000 customers in 43 countries, IBM followed. Big Blue has gained traction, but not to the extent of Oracle. And I doubt that IBM would have followed a model it didn't think had sustaining potential.
Still, Linthicum doesn't stop there: "The notion is they provide specialized capacity beyond what you deployed using Oracle's private cloud systems, which Oracle labels "infrastructure as a service" but is not actually a cloud IaaS offering -- it's the usual Oracle data center gear. Just as Oracle IaaS is not a true cloud offering, neither is Oracle's new "Iaas On Demand" selection of rental application servers."
Again, this is a ridiculous claim, especially since Linthicum is pretending to be an expert on something that is still in its infancy. It's like saying Netflix and cable companies can't both use the term "video-on-demand" since movies are being piped differently to various platforms. But so what! The customer only cares if the picture is clear and the sound is crisp.
Unlike with a true cloud on-demand service, your monthly fee -- which requires a three-year contract -- covers just the hardware, its maintenance, and some degree of usage. You pay extra for the Oracle software licenses and for "peak" usage (no definition or price given). It's not the standard cloud model, in which the entire service is included with the fee.
Yes, and no. Oracle's strategy does not focus solely on these assertions. In fact, it's quite the opposite. Oracle innovates at the technology layer, thereby giving customers more leverage and independence from consulting fees. Not everyone can be Cisco (NASDAQ:CSCO), which is in its fourth year of converting its own cloud infrastructure, which started 2009. Cisco hopes to be completed by the second half of this year. And this is an IT company that sells cloud services. Interestingly, it was in 2009 when Cisco started its decline. Had Cisco contracted out its cloud services to Oracle, it could have remained focus on growing its business. Therein lies the value.
Even if Linthicum's pricing claims were correct, then it means Microsoft's (NASDAQ:MSFT) Azure, which has a pay-as-you-go model, is also fake. But Microsoft has been reducing its prices because it can't compete. Conversely, there are twenty-five million users on Oracle's "fake" cloud, including National Australia Bank, which has paid Oracle more than $1 billion. I don't think Dell would be going private if it had a fake cloud like that. Besides, if customers can be so easily fooled, IBM's Smarter Solutions seems like the perfect alternative.
Likewise, Microsoft's Windows/Office franchises, which are still strong in the enterprise, have not helped propel Azure. Why? It's because the cloud concept itself, aka "software as a service" or "on-demand computing" is still evolving. Companies like Oracle do well servicing this transition. To that end, Linthicum owes Oracle and every CIO in America and those 42 other countries an apology.
Fool contributor Richard Saintvilus has no position in any stocks mentioned. The Motley Fool recommends Cisco Systems, Netflix, and Salesforce. The Motley Fool owns shares of International Business Machines, Microsoft, Netflix, and Oracle. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.